Banks’ direct cost of cash management to reach N192bn – CBN

Regulators
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February 29, 2012

The direct cost of cash management to the banking industry is estimated to be about N192 billion by 2012, said Sanusi Lamido Sanusi, governor, Central Bank of Nigeria (CBN). Sanusi disclosed this recently in a lecture he delivered at the University of Warwick’s Economic Summit, UK, where he noted that the banking sector occupies a vital position in the economy and must be subject to continuous reforms for it to function efficiently.

Research has shown that about 90 percent of withdrawals by bank customers are typically below N150, 000, whereas, only 10 percent of bank customers who withdraw over N150, 000 were responsible for the rise in cost of cash management being incurred by the generality of bank customers.

The CBN recognises the need to balance the objectives of meeting genuine currency transaction demand and combating speculative market behaviour that may negatively affect economic growth and stabilisation measures. “The new cash withdrawal policy will ensure that a larger proportion of currency in circulation is captured within the banking system thereby enhancing the efficacy of monetary policy operations and economic stabilisation measures,” the CBN stated.

“The policy does not in any way stop account holders from withdrawing any amount of money they desire from their accounts. The policy simply recognises that banking is a business and, as with any business, there are costs that are sometimes shared between the business and the customers.

The policy stipulates that to withdraw more than N150, 000 (for individual account holders) and more than N1, 000, 000 (for corporate account holders), there will be a transaction cost,” Sanusi stated in the lecture titled “banking reform and its impact on the Nigerian economy.” “There are also risks involved in keeping or moving large amounts of cash, namely the high incidence of robberies, encouraging corrupt practices and the public’s propensity to abuse and mishandle currency notes.

The CBN, in collaboration with the Bankers’ Committee, aims to achieve an environment where a higher and increasing proportion of transactions are carried out through cheques and electronic payments in line with global trends,” Sanusi said.“The enforcement of the T+2 cheque clearing cycle is being stepped up and efforts are ongoing to reduce the cycle to T+1. Anybody can now make payments of up to N10 million through the clearing system with a cheque,” the CBN governor disclosed.

In another development, the apex bank recognises that the importance of microfinance in a growing economy cannot be over-emphasised given its potential in addressing the challenges of excluding a large population from full participation in economic activities. “Thus, in 2012 the bank is looking to establish a Microfinance Development Fund (MDF) aimed at improving access to affordable and sustainable sources of finance by Microfinance Institutions (MFIs) and Microfinance Banks (MFBs).

It would have both commercial and social components. This would enhance their operations and outreach and support the capacity building activities of the MFBs/MFIs,” according to the CBN. The CBN stated: “As of December 2011, there were 24 deposit money banks with 5,789 branches and 816 microfinance banks bringing the total bank branches to 6,605.

The ratio of bank branch to total population is 24,224 persons, indicating a high level of financial exclusion. This is further substantiated by the 2010 Enhancing Financial Innovation and Access (EFInA) survey, which observed that 46.3 percent of Nigeria’s population is still financially excluded compared with South Africa, Kenya, and Botswana with 26 percent, 32.7 percent and 33 percent, respectively.”

According to him, the modest achievements recorded so far in the banking sector have been largely due to greater collaboration and commitment of purpose among key stakeholders. “Thus, the CBN in its efforts to develop a sound and vibrant banking system will strive to ensure that democratisation of policy is sustained. It will also continue to ensure that the banks abide strictly with the code of corporate governance for efficient functioning of the banking industry,” he added

Source: Businessday

 

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